Assume the long run elasticity of demand for gasoline is -0.25 and start with the current California price of gasoline of $3.10 per gallon.

How much would we need to increase the price in order to cut gasoline use in half in the long run?

The price elasticity of demand = %age change in the quantity demanded / %age change in the price.

We have given that the quantity demanded of gasoline should be cut in half which means a %age decrease in the quantity demanded = 50%.

=> -0.25 = -50% / %age increase in the price.

%age increase in price = 0.25 x 50% => 12.5%

Now the old price is $3.10.

12.5% of 3.10 = 0.3875

New price = 3.10 + 0.3875 => $3.4875 or $3.49.